The constitution: Capital & Dividends of co

Question 1

What is the constitution of a company?

Answer 1

1) An internal governance document that covers its shares, directors & shareholder meetings and winding up.

Question 2

Effect of the constitution?

Answer 2

Its a contract as stated by section 42(2) that binds the members and the company. Those not privy can’t sue co based on the constitution’s rules.

Question 3

What does section 25 to 27 mention?

Answer 3

1) Co may engage in any lawful activity.
2) Const can have restrictions that don’t affect the validity of a transaction.
3) Directors have the power to engage in any activity unless it’s ultra vires the const. Then they’d be personally liable.

Question 4

What are the conditions needed to alter the constitution

Answer 4

1) A call of a special resolution
2) Changes made would be to adopt, revoke, amend the const
3) Directors to deliver the altered const to registrar of co’s within 10 days

Question 5

What are shares?

Answer 5

1) Under section 45, these are moveable and transferable property that represent a holder’s interest in a co.
2) The give rights to and binds members(sue other membs and co)
3) Only available to Private and Public co’s

Question 6

What are the 2 main types of shares and their jurisdiction?

Answer 6

Ordinary:
1) A member is entitled to vote at co meetings and special resolution.
2) Is paid dividends after preference s/holder.
3) Participates in surplus dividends and return of capital.
Preference:
1) Payout of dividends first.
2) % of interest/ cumulative dividends
3) If no profit then no profit(all shares)
4) No voting rights unless it affects their stock then a special resolution is called.
5) Can’t participate in surplus

Question 7

What are the “other” shares that can be issued?

Answer 7

1) Reedemable
2) Stated Capital(part of application to regis)
Issued- Portion of SC
Allocated- Portion of ISC to members
Paid up- Portion of ISC paid up
Called up- Portion of ISC unpaid/demanded
Uncalled up- Portion of ISC unpaid/undemanded

Question 8

What is the CM principle?

Answer 8

The common law states a company shouldn’t return capital to it’s members directly or indirectly unless there’s a positive solvency test.

Question 9

What are the 6 rules of CM

Answer 9

1) Co can’t acquire/ purchase it’s own shares
2) Co can’t give financial assistance for acquisition of own shares
3) Under section 78, a sub co can’t hold shares in it’s holding company.
4) No discount shares.
5) Dividend to not be paid out from capital unless board approval with positive solvency test.
6) Co can’t reduce stated capital unless special resolution with publication is done.

Question 10

Differences between shares and debentures and their holders?

Answer 10

Shares & holders
1) A member
2) No redemption
3) Have to respect CM rules
Debentures & holders
1) Not a member
2) Redeemable
3) CM not apply (interest paid out from cap)
4) Co to be sued/ wound up if they’re not paid

Question 11

What are dividends?

Answer 11

Profits available to be paid out to share holders

Question 12

Requirements and rules of dividends under section 58 state?

Answer 12

1) BOD must authorize
2) Final year distribution to be approved by s/holders at ordinary resolution.
3) Interim dividends when BOD approve without shareholders but with a solvency test.
4) Distribution of dividends not to be paid if there’s a negative solvency test that’s signed by directors
5) If distribution does happen without the signing of a director approving solvency test, then an offense has been committed.